According a recent report by a credit information bureau CRIF High Mark, delinquencies in microfinance sector saw a notable rise, despite overall decline in Non-Performing Assets (NPAs) of the banking sector in India.

• Microfinance is provision of thrift, credit, and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve their living standards.
• All collateral-free loans to individual/s belonging to low-income households (having annual income up to ₹3,00,000) are treated as microfinance loans. (RBI)

Significance of Microfinance

• Financial inclusion: Caters to almost 8 crore low-income borrowers, excluded from traditional banking.
• Rural development and poverty alleviation: Supports local industries like handicrafts, agriculture, and small-scale manufacturing and promotes self-employment, reducing dependency on seasonal or exploitative jobs.
• Women empowerment: Microfinance to women Self-Help Groups (SHGs) helping them gain financial autonomy and decision-making power.

Challenges faced by Microfinance Institutions

• Facing difficulties in raising low-cost long-term funds.
• Heightened risk when too much of their lending portfolio is concentrated in unsecured microloans, creating vulnerability.
• Debt-waiver campaigns by states to waive off debts disrupts the repayment cycle.